28 October 2008
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Johannesburg — Vehicle production globally is still determined by the supply networks of the multinational vehicle makers, and by sustained pressure to move manufacturing to low-cost countries according to Automotive Perspectives, a PricewaterhouseCoopers report.
This has led to growth in countries such as Brazil, Russia, India and China. SA has also benefited from vehicle component export contracts in the past few years -- as have other smaller players such as Morocco, Iran, Vietnam and countries in Eastern Europe.
But the report predicts no less than a structural transformation of the global automotive industry this year and next, as demand from mature vehicle markets falls.
The report suggests South African manufacturers need all the support they can get.
Challenges to the local industry include rising fuel costs, emission standards, fluctuating exchange rates, shifts in consumer behaviour and declining economies in developed countries.
Apart from the challenges noted in the report, one could add more hurdles faced by SA's automotive industry, such as falling consumer spending, high inflation and interest rates and a skills crisis.
The possibility of a longer-term weakening of the rand is, however, of far greater concern.
Although a weaker rand benefits exporters, its benefit would be delayed as export orders are signed months before actual delivery .
Many components used in locally assembled vehicles are imported. A weaker rand therefore translates to higher input costs, which in turn result in rising product prices.
This partially negates the benefits of a weaker currency for manufacturers -- and the sector is at the heart of SA's industry.
The Bottom Line is edited by Eduard West
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